* * * ** CHAPTER * Demonstrating Ethical Behavior and Social Responsibility 4 Nickels * McGraw-Hill/Irwin Understanding Business, 8e McHugh * McHugh 1-1 4-1 © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. * * * Top U.S. Ethical Issues Improper Accounting Practices Deceptive Sales/Marketing Practices Conflicts of Interest Lying on Reports/Falsifying Records Dishonesty with Customers Lack of Public Trust in Corporate America Bribes and Kickbacks Unfair Treatment of Employees/Customers Securities and/or Bank Fraud Discrimination Producing Low-quality or Unsafe Products 0% Source: CMO Magazine, October 2004 10% 20% 30% 40% 50% 60% 4-2 * * * Ethics of MBA Students Percent of MBA Students Who Would: • Buy Stock on Inside Information 52% • Reveal Corp. Secrets to Spouse/Family 50% • Let a Gift Sway Purchasing Decision 26% • Pay Someone Off to Close a 13% Business Deal Source: USA Today 4-3 * * * Ways to Prevent Unethical Behavior Increasing Penalties for Offenders Employee Education Programs Publicity About Those Being Punished A Code of Conduct Adding Ethics Classes to College Programs New Laws 0% Source: CMO Magazine, Oct. 2004 10% 20% 30% 40% 50% 60% 70% 80% 4-4 * * * Social Responsibility CORPORATE SOCIAL RESPONSIBILITY (CSR) is a business’s concern for welfare of society. It is based on a company’s concern for the welfare of all its stakeholders, not just the owners. Some CRITICS of CSR believe that a manager’s sole role is to compete and win. 4-5 * * * Codes of Ethics Milton Friedman stated that the only social responsibility of business is to make money for stockholders. DEFENDERS argue that CSR makes more money for investors in the long run. One study showed a positive correlation between CORPORATE SOCIAL PERFORMANCE and CORPORATE FINANCIAL PERFORMANCE. 4-6 * * * Ethics I. ETHICS IS MORE THAN LEGALITY Learning Goal 1 Explain why legality is only the first step in behaving ethically. A. Ethical Standards Are Fundamental B. Ethics Begins with Each of Us Learning Goal 2 Ask the three questions one should answer when faced with a potentially unethical action. 4-7 * * * Ethics Check Questions: • Is It Legal? • Is It Balanced? • Is it Fair ? • How Will It Make Me Feel About Myself? 4-8 * * * Factors Influencing Managerial Ethics Individual • Values • Work Background Organizational Environmental • Top Level Mgmt. Philosophy • Competition • Family Status • The Firm’s Reward System • Personality • Job Dimensions • Economic Conditions • Social/Cultural Institutions 4-9 * * * Codes of Ethics • Compliance-Based • Integrity-Based 4-10 * * * Codes of Ethics COMPLIANCE-BASED ETHICS CODES are ethical standards that emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers. 4-11 * * * Codes of Ethics INTEGRITY-BASED ETHICS CODES are ethical standards that define the organization’s guiding values, create an environment that supports ethically sound behavior, and stress a shared accountability among employees. 4-12 * * * Ethics . II. MANAGING BUSINESSES ETHICALLY AND RESPONSIBLY Learning Goal 3 Describe management’s role in setting ethical standards. Setting Corporate Ethical Standards Learning Goal 4 Distinguish between compliance-based and integrity-based ethics codes, and list the six steps in setting up a corporate ethics code. 4-13 * * * Ethics III. CORPORATE SOCIAL RESPONSIBILITY Learning Goal 5 Define corporate social responsibility and examine corporate responsibility to various stake-holders. A. Responsibility to Customers B. Responsibility to Investors C. Responsibility to Employees D. Responsibility to Society and the Environment E. Social Auditing 4-14 * * * Codes of Ethics CORPORATE AND CRIMINAL FRAUD ACCOUNTABILITY ACT (Sarbanes-Oxley, 2002) 4-15 * * * Steps to Improve U.S. Business Ethics 1. Top management support 2. Employees’ understanding 3. Managers’ training 4. Ethics Office 5. Outsiders must be informed 6. Enforcement of ethics code 4-16 * * * Social Audit • Company • Outside Groups that serve as watchdogs: • Socially-Conscious Investors • Environmentalists • Union Officials • Customers 4-17 * * * Ethics IV. INTERNATIONAL ETHICS AND SOCIAL RESPONSIBILITY Learning Goal 6 Analyze the role of American businesses in influencing ethical behavior and social responsibility in global markets. 4-18 * * * International Ethics and Social Responsibility • Ethical problems are Not Unique to the U.S. managers • Demand for Socially Responsible Behavior from Global Suppliers • Joint Initiative on Corporate Accountability and Workers’ Rights • Inter-American Convention Against Corruption 4-19 * * * Best Company Reputation • Johnson & Johnson (80.6) • Coca-Cola (79.7) • Google (79.5) • UPS (79.4) • 3M (78.8) Source: USA Today 4-20 Most Admired Global Companies * * * 1. General Electric 6. Microsoft 2. Toyota 7. Dell 3. Procter & Gamble 8. Berkshire Hathaway 4. FedEx 9. Apple Computer 5. Johnson & Johnson 10. Wal-Mart Source: Fortune, 2006 4-21 * * * Levels of Corporate Social Responsibility Societal Responsibility Stakeholder Responsibility Ecological General Customers Profit Responsibility Environment Owners/Stockholders Employees Public Suppliers/Distributors Public Interest Groups Source: Marketing, 5/E by Berkowitz, Kerin, Hartley, and Rudelius. 4-22